Binance chief predicted FTX, Alameda demise: CZ says Voyager bailout ‘surprising even to me’ – let ‘bad companies fail’
In what may turn out to be a very prescient observation ahead of FTX filing for Chapter 11 bankruptcy today, Changpeng ‘CZ’ Zhao, CEO of Binance, warned the crypto industry months ago about the dangers of bailing out “bad companies” rather than letting them fail so “better projects take their place”.
The comments from a blog post were underlined when CZ was interviewed for the gm podcast produced by Decrypt in July.
He was asked about Sam Bankman-Fried’s trading firm Alameda Research extending a credit facility worth $500m to the now bankrupt Voyager Digital – when Alameda already owed $377m to Voyager, according to bankruptcy court filings.
“That was surprising even to me, to be honest,” said CZ.
Bankman-Fried’s crypto empire began to unravel this week after a report from CoinDesk revealed Alameda’s balance sheet has been denominated by the ftx token (FTT) – the native crypto used by the FTX ecosystem. On 11 November, FTX, its American subsidiary FTX US and Alameda filed for bankruptcy, with former billionaire Bankman-Fried stepping down as CEO to be replaced by John J Ray III.
BNB to USD
It was in July that Voyager filed for bankruptcy itself after the crypto hedge fund Three Arrows Capital (3AC) defaulted on a $670m loan.
However, in September, FTX won what was described as “a highly competitive auction process” to acquire Voyager’s assets, paying $1.42bn and beating the likes of both Binance (BNB) and the Coinbase (COIN) crypto exchange.
Loans upon loans?
In the summer podcast interview, Zhao went on to explain that Binance preferred a simpler approach to striking up business deals.
“Personally, for me, and to a large extent for Binance, we like very simple deals,” he said.
Contradictory bailout stance
After FTX offered a $250m worth of credit to struggling crypto broker BlockFi in the summer, CZ said in a 23 June blog post: “First, some companies/projects/products are poorly designed (no product-market fit), poorly managed, poorly operated.
“In short, they are just ‘bad’ projects. These should not be saved. Sadly, some of these ‘bad’ projects have a large number of users, often acquired through inflated incentives, ‘creative’ marketing, or pure Ponzi schemes.
“Further, in any industry, there are always more failed projects than successful ones. Hopefully, the failures are small, and the successes are large. But you get the idea.
The comments were seen as a criticism of FTX and its founder. Nevertheless, in contrast Zhao said during the podcast just days later that Binance was not against putting money into companies in tricky financial situations.
He said: “Many companies are short on money, that doesn’t mean most of them are bad companies.
On 8 November, Binance expressed an interest in taking over FTX, but after conducting initial due diligence, it pulled out of the deal the following day.
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